Mafia in the market

Feb 5, 2006

In a market where money can be doubled in a matter of days and weeks and client identification rules are easily flouted, can the mafia remain uninterested for long? Sources tell us that the Mumbai police have submitted a list of 12 mafia-linked entities to the Securities and Exchange Board of India (Sebi). These entities were apparently active in ramping up B-group scrips in the secondary market and are allegedly linked to the underworld don whose wife was recently investigated and interrogated on charges of extortion. Interestingly, these secondary market transactions are unconnected to the mafia links in the IPO scam as claimed by a section of the pink press. Market sources, however, say that once the mafia identifies the stock market as a good investment avenue it is unlikely to restrict its activities to penny stocks or B-groups scrips. Our sources believe that Participatory Notes (PNs) remain a vulnerable area despite the tightening of rules and reporting requirements; anecdotal evidence suggests that the regulator is still unable to trace true beneficial ownership, allowing scamsters free access to the capital market.

Dalmia’s trail

Rumours continue to gain currency that Dinesh Dalmia, former Chairman of the DSQ Group, who has been absconding and has an Interpol Red Corner notice against him, is back in India and living with a relative at a prominent New Delhi address. Meanwhile, his activities in the US have blown into a major scandal as more details of his vast web of dubious financing arrangements are being unearthed by the Federal Bureau of Investigation (FBI) and regularly exposed by the US media. Although Dalmia has fled from the US, details of his lavish lifestyle are spilling into the public domain through creditor’s claims against him in bankruptcy filings. For instance, in August 2005, a reader wrote to me saying that he had spotted Dinesh Dalmia and his wife driving by in New Jersey in a red Ferrari. An American source now tells me that was no exaggeration. The ‘‘Allserve bankruptcy trustee filed a request with the court (that the court promptly granted) last week, to be allowed to sell off and dispose of an automobile that Allserve had acquired under lease on August 23, 2004, for an initial down payment of $112,124.00 to be followed by 47 monthly payments of $1,799 per month. It was a 2004 Ferrari Challenge Stradale coupe’’. With access to that kind of money, is it any wonder that Dalmia is successfully invisible in India?

Mutual Fund shenanigans

While the government and Sebi are working out non-tax incentives for mutual funds, the regulator also needs to take a hard look at the mischief in their subscription process. The bluechip equity investment scheme of SBI Mutual Fund had officially closed its subscription lists on January 20. However, investors report that sales agents were pursuing them with cash discount incentives well until January 24 and beyond. On asking how the applications could be legitimately accepted after the offer had closed one investor was told that all branches of India’s largest commercial bank would accept back-dated applications until the end of January. That is exactly what happened. The books remained unofficially open until after a competing scheme by UTI Mutual Fund had closed for subscription. In fact, State bank of India Mutual Fund announced its scheme collection (Rs 2,500 crore) only after Unit Trust of India MF announced its own collection of Rs 2,000 crore, although it closed much later. This tactic of permitting post-closure applications cheats early subscribers because those who come in late get the full benefit of the Net Asset Value declared, without having their funds blocked up. Sources also say that the incentives by SBI Mutual Fund were structured in a manner that brokers and agents profited by persuading investors to break up applications into units of Rs 5,000 each. Sebi’s recent findings in the IPO scam show that unless it cracks the whip, the biggest and best players in the fund business are just as capable of bending the rules as less known players.

Surrogate promotion

In the last few years, which high-flying business group has boasted of playing host to some of the biggest national and international celebrities such as Amitabh Bachchan, Kapil Dev, Rahul Dravid, Anna Kournikova, Boris Becker, Michael Johnson, Daley Thompson and a few of India’s past and present cricket captains? It is a bit of a struggle for most people to piece together news reports to arrive at the answer — the Sahara Group, more specifically its Amby Valley complex off Mumbai. Last week the Group issued full-page ads featuring gushing comments by these celebrities, without once mentioning the name of the group. The advertisements carry a logo, but it is not the Amby Valley logo featured on its website. The real estate industry is wondering whether the promotion is aimed at selling dwelling units at Amby valley or whether Amby Valley is itself up for sale.